Tax Saver Benefit (TSB) Plan

Tax Saver Benefit (TSB) Plan

The TSB plan is designed to save tax dollars when the eligible employee pays for certain IRS-eligible expenses. When the employee elects to set aside salary contributions into one or both the TSB expense reimbursement accounts, the contributions are not subject to federal, state, local, or FICA taxes. This can mean substantial savings to the employee. Eligible employees may elect to participate in either or both reimbursement accounts:

• Health Care Reimbursement Account - for health care expenses incurred by the employee or their eligible tax dependents that are not eligible for health plan reimbursement.
• Dependent Care Reimbursement Account - for child or elder day care (not health care) expenses that allow the employee to work.

The TSB expense reimbursement accounts are administered by The Nyhart Company.

Points to Remember

• Estimate conservatively. Unused TSB contributions are forfeited, and cannot be “rolled over” to the next year, nor can they be moved between accounts.
• All full-time appointed employees are eligible; the employee does not have to be enrolled in a medical or dental plan to participate.
• Contributions are elected on an annual basis. Annual elections cannot be changed during the year unless the employee experiences an IRS-defined change in status.
• The annual election amount is eligible from January 1. (Money can be taken out before it is put in.)
• The employee must enroll each year in TSB reimbursement accounts in order to participate–enrollment is not automatic each year.
• In order to be reimbursed from a TSB account, the expenses claimed must be eligible under IRS regulations, incurred during the tax year, and submitted by the following March 31.
• If participation (incurring eligible claims) is to continue while an employee is on leave without pay, regular TSB contributions must be made on an after-tax basis.

TSB Dos and Don’ts
In order to avoid some of the common mistakes made when completing the enrollment form:

• Do list the annual amount you want to contribute; don’t list the per-paycheck amount.
• Do estimate pledges based on expenses anticipated during the tax year (January 1 through December 31); don’t estimate on an academic year.
• Do list the amount of the health expense pledge for the employee and the employee’s tax dependents in the Health Care Reimbursement Account section; don’t include any health expenses in the Dependent (Day) Care Reimbursement Account section.

Contact Nyhart or a tax advisor with questions about whether specific expenses are eligible.

Examples of reimbursable health care expenses

• Prescriptions
• Deductibles and copays
• Routine care/physical exams
• Transportation for medical services
• Vision exams, prescription lenses, frames, and contacts
• Radial keratotomy
• Hearing aids and related expenses
• Weight-loss programs and services for obesity
• Stop-smoking programs
• Dental care and orthodontia
• Acupuncture
• Over-the-counter medicines

Examples of expenses not allowed by IRS regulations

• Cosmetic procedures or medicines prescribed for cosmetic purposes
• Expenses paid but not yet incurred
• Kindergarten
• Overnight camp

How the TSB Plan Saves Money
Suppose an eye care professional says that a pair of glasses cost $262, but a $62 mail-in rebate is available to make the cost of the eyeglasses only $200. Most people would take advantage of this rebate. The Tax Saver Benefit Plan provides a similar kind of savings—the employee pays for health care, then submits a claim to the plan for reimbursement with tax-free income contributed from his or her regular pay.

Normally, an employee would pay for out-of-pocket health care expenses with after-tax income. By contributing pre-tax income to a TSB account, it is like getting a discount on these bills since as much money does not have to be earned to pay for them. The money contributed to TSB reimbursement accounts by automatic salary reduction is not subject to federal, state, local, or FICA taxes. The amount of the savings depends on the employee’s income, marital filing status, withholding allowances, and resulting tax rate. For example, a single employee with an annual salary of $27,000 and no allowances would save approximately 23.65 percent in taxes (12 percent federal, 7.65 percent FICA, 4 percent state and local).

The following is an example only and is based on an annual salary of $27,000. Tax savings will depend on individual tax rate.

Next Article: Dependent Eligibility